BRIEFING | 4 JUNE, 2020 Two-speed energy transition in the Western Balkans CEE Bankwatch Network’s mission is to prevent environmentally and socially harmful impacts of international development finance, and to promote alternative solutions and public participation. Learn more: bankwatch.org BRIEFING | 4 JUNE, 2020 For more information: Two-speed energy transition in the Pippa Gallop Southeast Europe Energy Advisor Western Balkans CEE Bankwatch Network [email protected] Overview Ioana Ciuta ransition to an energy-efficient, renewables-based power sector in the Western Balkans1 Energy Coordinator should in theory be much easier than in many other countries. The region as a whole only CEE Bankwatch Network T [email protected] has around 18 million inhabitants, most of it is not heavily industrialised, it has high solar and wind potential, most of the countries are quite well interconnected, and there is ample potential Davor Pehchevski for saving energy. Project Leader CEE Bankwatch Network Yet decades of underinvestment and a myopic focus on continuing the use of the region’s [email protected] traditional staples – coal and hydropower – have led to the region’s energy sectors lagging ever- further behind their neighbours in the EU. All except Albania are dependent on coal, and in 2016 their 16 lignite power plants emitted as much sulphur dioxide and dust as all the EU’s 250 coal plants together. All the countries also heavily regulate electricity prices as a social welfare measure and are wasting large amounts of energy due to high distribution network losses, the use of electrical heaters for space heating, and lack of household insulation, among other reasons. Yet an important change has started to take place. Just two years ago, all the Western Balkan countries except Albania still planned to build new coal power plants. Since then, three out of five have abandoned these plans. The region has split, creating a two-speed energy transition. Cover Photo: Wind turbines Montenegro, North Macedonia and Albania are clearly orienting themselves towards renewable and coal power plant in energy and finally making steps to diversify beyond hydropower. These three countries have Kosovo, Arben Llapashtica reached the stage where they see the benefits of the energy transition for themselves and are moving forward. CEE Bankwatch Network’s Kosovo, too, despite being almost totally coal-dependent, has a unique opportunity for change. mission is to prevent The Kosova e Re coal power project has dominated its plans for over a decade, but the collapse environmentally and socially of the project in March has finally opened up space for alternatives. harmful impacts of international development finance, and to The Western Balkans’ neighbours are also accelerating their transitions. Hungary and Greece promote alternative solutions have pledged to phase out coal power by 2030 and 2028 respectively. The fact that Greece made and public participation. its announcement while the Ptolemaida V coal plant was still being built shows how risky it is to push ahead with major fossil fuel projects in spite of warning signals on changes in the sector. Learn more: bankwatch.org 1 Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, Serbia. CEE Bankwatch Network 2 A similar lesson must be learned from Slovenia, where the loss-making Šoštanj unit 6 was completed in 2014. A corruption investigation is still ongoing and in May 2020 Slovene prosecutors filed charges including money laundering against 12 people and two companies. Croatia and Romania have both abandoned plans for new coal power plants in recent years after it became clear that it would be impossible to build and operate them without subsidies, thus running afoul of EU State aid legislation. Where once it was a resource, coal is now a liability. But Serbia and Bosnia and Herzegovina are still pinning their hopes on it. This briefing gives a snapshot of the situation across the region, showing who stands where in the energy transition and highlighting potential pitfalls to be avoided in the coming years. Moving up a gear Albania Albania, with a population of around 2.8 million, has for decades been almost entirely dependent on hydropower for its power supply. This is an advantage in decarbonising its energy sector but also makes it highly vulnerable to the changing climate, and means that it has to import electricity most years. In 2012, Albania committed2 to increase its share of renewable energy – not electricity – to 38 per cent by 2020. By 2017 it had managed 34.6 per cent renewable energy, but had not diversified its electricity generation at all. Until 2017, Albania only offered renewable energy incentives for hydropower, and as a result solar photovoltaic (PV) and wind have remained underdeveloped. Uncontrolled hydropower development has caused increasing discontent and damage to protected areas, and incentives for hydropower up to 15 MW cost Albania no less than EUR 93.5 million in 20183 – by far the highest amount in the region.4 Although it has added to installed generation capacity, its variability means that Albania often still has to import electricity. Chart 1: Albania electricity mix and net imports In 2017 Albania finally changed its legislation to allow incentives for solar and wind developments and to switch to an auction system for awarding them. A solar auction was held in 2018 and won by India Power, which is set to build 100 MW of solar power near Vlora. The output from 50 MW will be purchased by the Government at EUR 59.9/MWh 2 As part of its commitments under the Energy Community Treaty 3 Calculated from the Albania Energy Regulatory Authority Annual Report for 2018, 2019, p.161 4 CEE Bankwatch Network: Western Balkans hydropower: Who pays, who profits? September 2019. CEE Bankwatch Network 3 over 15 years, and the electricity from the other 50 MW will be sold at market price. It is not clear how the project is progressing. In May 2020 Albania completed another solar auction, for 140 MW, in Karavasta, near Fier. Following a similar model as the previous auction, half will be supported via an offtake agreement at just EUR 24.89/MWh for a period of 15 years. Another 70 MW, without support, is to be sold at the market price. While these are positive signs that Albania is finally diversifying, it should also do more to unlock the potential of smaller-scale renewable energy. It has adopted rules on net-metering schemes for consumers with renewable energy generation facilities up to 500 kW and development is starting, but much more can be done. Energy efficiency is another area where action needs to be stepped up. Inefficient use of energy represents a major concern in the country, especially its high distribution losses, which totalled 24.4 per cent in 2018. As well as its continued construction of hydropower projects – including in highly valuable areas such as the Valbona National Park and the Vjosa river – the main issue threatening to distract Albania from its energy transition is gas. Albania produces a small amount of gas, mostly used in oil production and the refining industry, but the country is not connected to international gas networks at the moment. The controversial Trans-Adriatic Pipeline (TAP) has been built on its territory, and Albania plans to make use of it, as well as participating in the construction of the Ionian-Adriatic Pipeline that would take gas from TAP through Montenegro to Croatia. Unfortunately, Albania also plans to use gas in the power sector, thus undermining its decarbonised electricity supply. It has a 98 MW gas/oil fired power plant at Vlora, financed by the World Bank, EBRD and EIB, which has never operated due to technical faults. Not only does it plan to relaunch this plant, but it is also considering building new gas power plants. It is precisely the lack of widespread gas use which gives some of the Western Balkans countries an advantage in decarbonisation, allowing them to leapfrog straight to wind and solar, balanced by their existing hydropower fleet. Making new investments in gas therefore threatens to become an expensive distraction from decarbonisation. It will lock the countries into a source of energy which only cuts greenhouse gas emissions by around 30 per cent compared to coal, once fugitive methane emissions during extraction and transit are taken into account. This is far from the total decarbonisation of the energy sector needed to achieve the goals of the Paris Agreement. Albania is one of the few Balkan countries producing oil – 959,000 tonnes in 2017. The state-owned Albpetrol is active in the development, production and trade of crude oil, while the largest oil producer is Bankers’ Petroleum, previously supported by the EBRD and IFC and now Chinese-owned. This sector will also need to be phased out in the coming decades, but the first step will be to avoid opening new oil fields. Montenegro With around 620,000 inhabitants, Montenegro’s electricity needs are mainly met by the 225 MW lignite power plant at Pljevlja and the 307 MW Perućica and 342 MW Piva hydropower plants. In the last decade, Montenegro’s ability to meet its electricity demand domestically has varied according to the hydrological situation. In 2010 and 2013, both rainy years, it was able to meet demand domestically, while in dry years – 2011, 2012 and 2017 – it still had to import relatively large amounts of electricity. Montenegro’s hydropower dependence is not as extreme as Albania’s, but is still a serious issue. CEE Bankwatch Network 4 Chart 2: Montenegro electricity mix In 2014 the Montenegrin government adopted an Energy Strategy that planned no fewer than three large new power generation projects by 2022 – the Pljevlja II coal plant (254 MW), the Morača hydropower plants (238 MW), and the Komarnica hydropower plant (168 MW).